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Busting The Health Insurance Exchange Myth August 19, 2009

Posted by Kate Ryan in Health Care, Health Care Co-Op, Health Care Exchange, National Politics, Politics, Public Health, Public Option.
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fehbpRaging through the current health care debate is this idea that if the government supported not-for-profit health care cooperatives and insurance exchanges, there would be adequate market competition and no need for public health insurance.  I have heard countless Republicans say that the uninsured should be allowed to purchase insurance across state lines or buy into one of the largest health insurance exchanges – the Federal Employees Health Benefit Plan (FEHB).  These arguments seem to be gaining traction as public support for a public health insurance option seems to be dwindling.

 Last night, Joe Klein of Time Magazine appeared on The Ed Show on MSNBC.  The host, Ed Schultz, has been crazy over the Obama administration’s giving up on single-payer health care and seemingly caving in on a public insurance plan option.  Schultz spent yesterday’s show railing against health care co-ops.  Indeed, studies have shown the effectiveness of cooperatives at controlling costs and improving access to be limited, at best.  Klein said that the public insurance option could be eliminated from health care reform in favor of these exchanges.  He stated – with Schultz strongly dissenting – that  they would achieve the goals of improving access, improving quality of care, reducing cost, and potentially provide universal coverage.  Perhaps this is possible in the parallel universe that Mr. Klein lives in, but here on this earth, not so much.

FEHB is an enormous health insurance exchange plan where federal employees have the “choice” of picking the plan that best suits their needs.  The costs are based upon community ratings and nobody can be denied for pre-existing conditions.  The choice, however, is an illusion.  In the FEHB program, the employee gets to choose during one open enrollment period per year.  So, if the insurance stinks and doesn’t suit your needs, you are stuck living with it and cannot change until the next open season. 

Usually the lowest-cost options are HMOs and other individual-practice plans.  The employee is presented with a set of “options” specific to the state and/or county or city in which he lives.  In New York, where I live, there are 20 plans set out in the state.  Because of where I specifically live, however, my choice is narrowed down to 5 plans.  Of those 5 plans, the employee portion of a family premium can cost anywhere from $67.73 to $107.36 bi-weekly for high-deductible plans; from $194.06 to $449.33 bi-weekly for zero deductible plans.  All of the plans include co-pays for doctor visits and prescription drugs.  All of the prescription drug plans are “formulary” plans that penalize you for brand-name pharmaceuticals by charging very large co-pays (upwards of $25.00).

Looking at just the costs, it would seem as though choice is real.  But if you look deeper, the rates are lower in high deductible plans because these buyers are generally younger and have less illness.  Instead of pushing the community risk through the entire population, insurers “cherry-pick” single people, younger people, people with no children, and can keep their prices artificially low.  The “high deductible” on these plans, however, is often $8,000 to $10,000 per family that must be paid prior to receiving benefits.  So, in addition to paying $67.00 every two weeks for coverage – you’re not covered until you spend $8,000 out of your own pocket – making your cost $9,742 per year.  And don’t forget, the government is paying about $5,300 for your insurance – making the grand total of premiums, employer contributions, and deductibles over $15,000 per year.  Had you joined a more expensive plan with no deductible at $104.20 biweekly you would spend $2,700 out-of -pocket for premiums.  The government would have paid about $8,400 in premiums, making your insurance cost $13,700 per year.  Add in co-pays for prescription drugs and doctor visits and it wouldn’t be hard to spend the extra $1,300 to make a grand total of $15,000 per year.  Some choice.

But what about buying over state lines?  New York must be a high cost state.  Wouldn’t it be cheaper for me to buy insurance in, say, Mississippi?  Not if you prefer an HMO.  These plans, because they include networks of certain physicians, hospitals, and pharmacies, can not effectively operate in all 50 states.  Administrative costs would skyrocket.  Also, Mississippians only have two “options”, both with high deductibles, and costing between $67.73 and $91.19 bi-weekly.  When the government’s share of premiums and the deductibles are factored in, lo and behold, the yearly cost of these plans is around $15,000.

The only plans that are feasible to purchase over state lines are traditional fee-for-service plans.  In these plans, you visit the doctor, submit a claim, and the insurance company pays your doctor or hospital according to a fee schedule they have set out.  You are responsible for any balance.  The FEHB offers 10 national fee-for service plans open to all and 4 plans open only to specific individuals (members of a union or trade association, etc.).  The fee-for service plans all include deductibles and range from $77.89 bi-weekly to $244.56 bi-weekly.  Magically, when deductibles and the government share of premiums are worked in, the amount per year is around $15,000.   

When one looks at these figures, it is clear that the “open market” of the health insurance exchange is not open at all.  Every single one of these companies is making about the same amount of money on every federal policy they sell.  There is not one iota of competition to make them provide care at a lower cost.  Where is the insurance company that thinks it can sign up enough members at $10,000 per year per family plan and provide coverage?  They could probably sell enough policies to do it, too, but they won’t.  Why?  Because they couldn’t make obscene profits every year and pay their CEOs millions.  There is no incentive to do it. 

A public option could provide coverage at two-thirds the cost per family plan.  If it is paid for in the same way the FEHB is paid for, each family would pay about $50 a week for coverage.  The government could subsidize the remaining premiums through a combination of tax increases, efficiency gains, and other financial instruments that do not necessarily have to fall on individuals (stock transaction taxes, VAT taxes, penalties to employers not providing insurance).

The best way to cure the health insurance mess in the United States is to go to a single-payer system.  Failing that, the only way to achieve the administration’s goals of providing access, controlling costs, and improving quality is to provide a public option – “Medicare For All.”


Paying for Health Care June 10, 2009

Posted by Kate Ryan in Democrats, Economy, Health Care, National Politics, Republicans.
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health_costsSenate Democrats unveiled a health care reform proposal yesterday that would mandate all Americans buy coverage, provide help paying for lower-income citizens, prohibit insurance companies from denying care based on pre-existing medical conditions – or charging higher premiums because of them, and allow choice in selection of coverage.  What the plan does not include is a public option.

Connecticut Senator Chris Dodd, who has taken the lead role on reform in the absence of Senator Edward Kennnedy, said “This does not symbolize the end of the game or even the end of the first quarter,” Dodd said. “We still have a lot of work ahead of us and are looking forward to working with our colleagues on a bipartisan basis to resolve the remaining issues and move forward with a mark-up of this legislation next.”  Dodd further explained that the lack of a public option was a “gesture” to Republicans who oppose it.

Do the Dems remember why they were elected?  Over 60% of Americans want to see some sort of public health plan included in any reform proposal – and they don’t give a hoot what Senate Republicans think.  Let’s face it, the failure to include a public option is a gesture to the insurance companies who have purchased Senate Democrats in equal numbers.  There has been a united chorus of wailing and tooth-gnashing over the “creation of a massive new bureaucracy” and the lack of funds to pay for it.

Do they think we are ALL idiots?  The government already maintains several public health plans – the largest of which is Medicare (the others are the VA and Indian Health Services).  Currently, Medicare is he primary health insurer for persons over 65 and the disabled.  Most public option plans include a Medicare “buy-in” for younger Americans.  The argument against this is cost – current CBO estimates show that Medicare will run out of funds in 2017.

But is the argument realistic?  Medicare part A – that covers doctor’s visits and outpatient procedures – costs about $237 billion per year, 85% of which is covered by payroll taxes.  Part B, hospitalization and catastrophic care, is paid mostly through general tax revenue (73%) as is Part D, the prescription drug plan (77%).  The total cost of Medicare is about $499 billion per year, 40% (in total) covered by payroll taxes.  The current payroll tax rate is 1.45%.  This is not limited by income – as is Social Security – and is matched by employers.  Raising the Medicare payroll tax would go a long way toward covering the uninsured as well as guaranteeing Medicare solvency.

Medicare revenues would go up by about $250 billion for each 1.5% the tax is raised.  Doubling the tax (2.9% on workers and 2.9% on employers) would result in revenue of  almost $500 billion – enough to cover the entire current cost of Medicare.  Including premiums of $100 per month per family or $50 per month per individual would result in an approximate $25 billion to cover any yearly expansion.  But what would this mean to the average American making the average salary of $800 per week?

If you are working and uninsured, the increase would cost you an additional $12 per week.  Including his premium, the monthly cost for health care for a single worker would be $98.  For a worker with a family, assuming two adult wage earners, the monthly cost for insurance would be $196.   In 2007, the average cost of an individual employer-paid plan was about $308 per month; for families the cost was $824 per month.  Increasing the Medicare tax would save the individual and his employer 76% on a family plan.  Good for the individual and good for business.

The other part of the equation is controlling costs.  Enrolling younger and healthier people into Medicare will reduce the overall cost of services provided per person.  Negotiating drug prices and permitting pharmaceutical re-importation will reduce the cost of prescription drugs.  Focusing heavier reimbursements on preventative care and providing payment for health-improvement activities will reduce the need for more expensive procedures.  Allowing the fast-track approval of medical procedures performed in other countries can provide doctors options other than expensive surgery.  Merely digitizing medical records can save over $1 billion per year.

A public option can be a reality if the will exists to make it so.  It seems as though our government can find money to conduct two bullshit wars just because.  Unfortunately, Congress has been bought and paid for by the health insurance industry that sees the public option as a death-knell to its for-profit business model.  But the industry did this to themselves.  After years of double-digit increases, denial of payment and care, and bringing American workers to their knees – they deserve everything that’s coming.  Either change or go out of business.